Perpetual bond

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Perpetual bond, which is also known as a Perpetual or just a Perp, is a bond with no maturity date. Therefore, it may be treated as equity, not as debt. Perpetual bonds pay coupons forever, and the issuer does not have to redeem them. Their cash flows are, therefore, those of a perpetuity.

Examples of perpetual bonds are consols issued by the UK Government. Most perpetual bonds issued nowadays are deeply subordinated bonds issued by banks. The bonds are counted as Tier 1 capital, and help the banks fulfil their capital requirements. Most of these bonds are callable, but the first call date is never less than five years from the date of issue—a call protection period.



References:

1.http://en.wikipedia.org/wiki/Perpetual_bond


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